Demand response of mental health services to cost sharing under managed care

Background: Higher demand-side cost sharing on mental health services than on general health services has been justified in economic terms because the demand response for mental health services has been found to be higher under traditional indemnity plans, and the welfare loss associated with insurance is higher while the risk spreading benefits were similar. The empirical studies of demand response for mental health services under fee-for-service health care delivery systems provide the supporting evidence. With the ascendance of managed care, the context in which demand-side cost sharing is imposed today differs from the context in which most of the empirical literature rests due to the presence of managed care. The economics of parity under managed care needs to be under re-examination. Aims of the Study. This study measures demand response of mental health services to cost-sharing under managed health care and compares it to demand response under traditional indemnity plans. Methods: The 1996 Medical Expenditure Panel Survey (MEPS) data are used because this is the only year in which sufficient detail is available on coverage and forms of insurance in order to make the desired comparison. To address the selection problem, we focus on employees (and their dependents) who are privately insured and who have no choice of health plan. Couples with more than one insurance plan are also excluded from the analysis. We use logit models to analyze the effect of prices on the probability of any ambulatory mental health uses. We compare the estimated demand response to demand-side cost sharing between managed care plans and non-managed care plans by examining how demand prices affect the likelihood of seeking mental health services. Results: In the range observed, deductibles have no significant impact on the likelihood of utilization for either indemnity or managed care plans. The coinsurance rate has a significant negative effect on seeking mental health services under indemnity plans. The effect of the coinsurance rate on demand under managed care plans is significantly smaller than that under indemnity plans and not significantly different from zero. Managed care itself decreases rates of utilization. Discussion: Results in this study are consistent with the findings from the literature on mental health parity. The evidence suggests that mental health utilization is controlled by management under managed care and not primarily by out of pocket prices paid by consumers. Limitations include the small number of HMO enrollees and the current method can not entirely eliminate a concern about selection bias. Implication for Health Policy. Efficiency argument against parity of benefits for mental health care may not apply to managed care settings. At the same time, parity may accomplish less than mental health parity advocacy groups expect under managed care in terms of increasing access. Implication for Further Research: Managed care continues to evolve, take many forms, and uses a number of rationing devices. It is important to conduct studies to isolate the effects of the components of managed care on utilization among different patient groups.